More players must be enabled to participate in solving energy crisis
For municipal changes to have their desired effect it is essential that they be empowered or backed by the Treasury to provide guarantees
Following President Cyril Ramaphosa’s recent commitment to embrace renewable energy and lessen the country’s dependence on Eskom, legislative amendments have now been gazetted to start making the necessary changes at municipal level possible. In short, the legislation enables municipalities to now generate or procure their own energy, meaning they are no longer restricted to purchase power from Eskom only.
These amendments should be welcomed as they show the presidency is serious about delivering on its promise to increase the energy supply in our country. This will also enable a co-operative, decentralised approach. Additionally, independent power producers (IPP) may be able to provide power at a lower price, which would lead to savings at municipal level, so more good news.
Should a municipality wish to generate or buy electricity from an IPP, the municipality must apply to the mineral resources and energy minister for permission to do so and comply with three key provisions:
- A feasibility study must be conducted and submitted,
- The municipality must prove a position of good standing in terms of the Municipal Finance Management Act, and
- The application must be aligned with the municipality’s integrated development plan.
While some of the requirements are still a bit vague at this stage, such as how one proves good standing, the fact that this first step has been made is positive. It is the start of processes being streamlined, and ultimately more players being entitled to participate in solving our country’s energy crisis. There will presumably be tender or bidding processes involved and the next steps will be revealed in due course.
These legislative changes may put an end to the long-running dispute after the City of Cape Town took both the department of mineral resources and energy and the National Energy Regulator of SA (Nersa) to court, when Nersa informed the city it could not license an IPP to establish new generation capacity in the absence of a specific determination from the minister catering for such capacity. Instead of ruling, the judge referred the matter back to the parties to try to resolve between themselves.
It will be interesting to see how Cape Town implements the legislative changes overall. It has been trying to buy power from IPPs for a while, and seems the most prepared to embrace the recent changes. The Western Cape has already established a municipal energy resilience (MER) project, aimed at strengthening the energy resilience of municipalities in the province.
However, for these municipal changes to have their desired effect it is essential that they be empowered or backed by the Treasury to provide guarantees so that they can enter into long-term power purchasing agreements. Investing in solar energy production is, in theory, a feasible option for many commercial businesses. The installations are quick, solar panels can be installed on existing building roofs, or open land can be used for ground mounted panels. Our climate is perfect for this.
However, large investors will want some kind of guarantee of future payments in place before they make such an investment. Twenty years is a good rule of thumb for the length of typical power purchase agreement on renewable energy projects. This coincides with the performance warranty of the solar panels and will provide investors the comfort to outlay capital required for impactful large solar farms.
The need for guarantees was proven in the IPP procurement programme, which launched in 2010 to enable government to buy power from large independent producers. This project only took off when the Treasury stepped in to provide the necessary guarantees for the finance. This gave investors the confidence they needed. The project now has 53 IPPs participating and is successfully contributing to alleviating the electrical energy shortfall in the country in a way that also contributes towards socioeconomic and environmentally sustainable growth. It’s a win-win situation.
For power procurement to be leveraged at municipal level, similar guarantees are needed. If we can get this right, this plan has the potential to make a significant difference in our electricity situation, grow our economy, and in so doing uplift many South Africans.
• John is director of New Southern Energy.
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